Social Capital is Good Economics: Invest in Technology for the Next Billion

This Sunday, reading the Times of India article - What MFIs can teach Wall Street by Swaminathan Aiyer (of Swaminomics fame) made my day! He writes "Big financial institutions of all sorts are in dire straits across the globe. But one category remains unaffected — micro-finance. Even as the global financial system freezes and giants like Lehman Brothers collapse, microfinance institutions (MFIs) are expanding unfazed. Famous financiers face defaults big enough to wipe them out, but MFIs report virtually zero default. This is extraordinary. Big financiers lend against collateral, a back-up if their borrower defaults. But MFIs lend with no collateral at all. Big financiers lend to the most creditworthy corporations. MFIs lend to poor women whom nobody in history considered creditworthy before. Yet, the secured loans to big corporations are bombing, while unsecured loans to poor women are being repaid in full."
And may I add that stimulating the BOP markets besides being a safe bet is also profitable - a double bottom line - social as well as economic good.
I want to build on this article to make two points not made by Mr Aiyar:
1. Portfolio diversification - In my view social capital is a good way of diversifying your investment portfolio and I think there IS a silver lining to this meltdown - I hope investors will go back to thinking about value creation in more than pure dollar terms.
2. Capital Gap - Currently there is a gap in the range covered by MFIs (loans must be under Rs 35,000 or so) and traditional business lending (loan must be above Rs 10 lakhs or so). Entrepreneurs that start technology based social businesses need loans in this range and they have nowhere to go. This is actually the sweet spot for social capital - it is a new area - call it "investing in technology for the next billion". There is great economic potential in this space- like the VCs who invested in technology startups in silicon Valley. It is the same story -except since the new market it is not in the traditional VC backyard, they are not jumping in. Somebody else needs to step in and I am hoping it will be the future leaders - Social Capitalists.
One can see that some new gen leaders who are now big boys (e.g. Google Foudation) are stepping into this space but it is not enough - traditional thinking needs to change too.
From my perspective, the meltdown is a wake up call for change and I hope Mr Aiyar's article is just the start of this new thinking.

TATA Nano, Singur and Social Entrepreneurship

TATA having to pull out of Singur actually has a plus side to it.
It so happens that when TATA fist announced the Nano car (Rs. 1 lakh), I was in India and I authored my most popular (to date) blog page called TATA Nano- Is It Social Entrepreneurship? And now I am in India again when TATA is announcing its pullout from West Bengal (Singur). TATA will relocate its Nano factory to another state in India.
The media is abuzz and Gurcharan Das (an author I admire immensely) has written an article in Times of India called "When Everyone Lost". My view is different. I think this is a battle lost that will win a war. From an economics perspective, yes - everyone lost. But if you think of Nano as a social enterprise, much social value has been created.

The Singur pullout proves my point - that social entrepreneurship - defined as social as well as economic impact - is really difficult. The big win here is that this factory relocation, has engendered an open conversation: who has the best interests of the people at heart? There is data available (increase in number of savings accounts, people trained for new jobs ..) that in one year the Nano plant has already had positive economic impact on life in Singur. As other states line up to offer the best deal to TATA, hopefully the destitute landowners of Singur (ultimately they must benefit) will start thinking for themselves rather than listening to vested political interests and that is a social change that cannot be undone.
So, I hope that TATA will still get the Nano out on schedule and this relocation, while admittedly an economic bump in the road, will prove to be of immeasurable social value in educating India about creating social impact through business methods - the "double bottom line". Next time the people in Singur get a deal like the Nano, they will think twice before agitating. In fact, Ratan Tata was most impressive (I saw this on TV) when he calmly mentioned that West Bengal will be considered for the second Nano plant. West Bengal's short term economic loss is immediate benefit for some other state (evidenced by the offers).
Now that is thinking long term, thinking social entrepreneurship.